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When the place of supply rules change on 1 January 2015 it will be important for affected businesses to be able to distinguish between business to business (B2B) supplies and business to consumer (B2C) supplies. A B2B supply is generally identified by the notification of the customer's VAT identification number. However, what should a business do if its customer does not provide a VAT identification number?
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When the place of supply rules change on 1 January 2015 it will be important for affected businesses to be
able to distinguish between business to business (B2B) supplies and business to consumer (B2C) supplies.
A B2B supply is generally identified by the notification of the customer's VAT identification number.
However, what should a business do if its customer does not provide a VAT identification number?
What should you do if your customer does not provide a VAT number?
Is your customer a business or a consumer?
On 1 January 2015, the place of supply of telecommunication,
broadcasting and electronically supplied services (TBES services) is to
change where the customer (the recipient of the supply of TBES
services) is a consumer. For B2B supplies of TBES services, the place
of supply is already the place where the business customer belongs. It
is important for UK suppliers to distinguish between business and
consumer customers as the VAT obligations in respect of each are
very different.
Where a customer is a consumer, a UK supplier will be liable to
account for VAT in the Member State where the customer belongs.
This will be achieved either by way of a VAT registration in the
customer's Member State or through the use of a system known as
the mini one stop shop (MOSS). However, where a customer is a
business customer, responsibility for accounting for VAT on the
supply rests with the customer under a system known as the 'reverse
charge mechanism'. In simple terms, the customer will account for
any VAT due in their Member State and the supplier will have no
obligation to charge or account for VAT. It is, therefore, extremely
important for suppliers to be able to identify whether their customers
are business customers or consumers.
Identification
The key evidence as to whether or not a customer is a business
customer is the VAT Identification Number (VIN). Where such a
number is obtained by the supplier, then subject to reasonable due
diligence checks, it can be relied on by the supplier to justify the
particular supply in question being treated as a B2B supply. Where,
for whatever reason, the customer fails to provide a VIN, the supplier
may use other evidence but, in the absence of any hard evidence,
should charge VAT at the prevailing rate in the customer's Member
State. VAT registration in the Member State of supply will be
compulsory if there is no turnover threshold. In practice, many UK
businesses simply resort to charging UK VAT in cases where no VIN
is provided. However, as the place of supply is not the UK, this
'fallback' position, while prudent, is actually wrong.
Options
UK businesses will need to consider how to treat transactions
where no VIN is provided. A business should either register under
the MOSS scheme (available from 1 October 2014) or register in
the country where the customer belongs. Either way, UK
businesses cannot rely on simply charging UK VAT to 'fill the gap'.
Tax Authorities in the Member States will expect local VAT to be
accounted for either by the supplier (through a local VAT return or
through the MOSS scheme) or by the customer in a B2B supply
chain.
Action needed
1 January 2015 is rapidly approaching. Are your systems ready and
can you identify whether your customer is a business or a
consumer?
Contact one of our specialists for further information:
Karen Robb
VAT Partner
T 020 772 82556
Issued: April 2014
Headlines
• Important to distinguish between business and non-
business customers
• VAT Identification number is key evidence
• Account through MOSS or via VAT registration in
Member State if no VAT number provided
